Supreme Court seeks government's response on Neptune promoters' plea

Supreme Court seeks government's response on Neptune promoters' plea

Justice Indira Banerjee issued notices to the Ministry of Corporate Affairs and the Ministry of Law and Justice

The Supreme Court has sought a response from the Government of India on an appeal alleging that various provisions related to the initiation of insolvency proceedings against promoters, who stood as guarantors for a debt-laden company's loan, are violative of their fundamental rights.

The promoters of Neptune Developers alleged that the provisions of the Insolvency and Bankruptcy Code (IBC) automatically precluded them from discharging their debts, transacting with creditors, and continuing their business even prior to the liability of the alleged debtor being determined.

The promoters stated, "The automatic commencement of an interim moratorium vitiates the very basis of the Indian legal system. The guarantor is condemned to be an outsider to his own business/properties for a claim which may otherwise be completely illegal."

The appeal further read, "The interim moratorium may also be abused by someone who can scuttle the proceedings/rights of other creditors by merely filing an application. The resolution professional has the power to call for sensitive personal information, including Income Tax Returns, and details of assets and liabilities without providing any opportunity of being heard. The intrusion on the fundamental right to privacy is unconscionable if there is no application of mind prior to the appointment of RP."

A bench led by Justice Indira Banerjee issued notices to the Ministry of Corporate Affairs, the Ministry of Law and Justice. the RP of Neptune, and the Central Bank of India. The court also tagged the plea filed by Sachin Manohar Deshmukh and Nayan Ashok Bheda along with another pending plea.

In its interim order, the apex court also restrained the promoters from selling or creating any third-party interests in their legal or beneficial assets. It directed the IRP not to file the report.

Earlier, in the June order, the Mumbai Bench of the National Company Law Tribunal had admitted the plea of the Central Bureau of Investigation (CBI) to initiate insolvency proceedings against the two promoters. The duo had stood as the personal guarantors for the Rs.100-crore loan taken by Neptune in 2013.

Deshmukh had argued that the NCLT order was passed without giving an opportunity to them to oppose the insolvency petition. Also, the one-sided appointment of the RP without ascertaining the correct facts of the case in adversarial litigation infringed on their fundamental rights.